Real-world assets tokenization lacks infrastructure, not just regulation


The merger between decentralized finance (DeFi) and traditional assets has been held back by a lack of infrastructure and regulatory standards around the world, sources recently told Cointelegraph.

“There just haven't been good institutional-grade systems for these companies to get into. Obviously, they're not going to run their entire system using a normal blockchain wallet and centralized exchanges,” said Colin Butler, global head of Institutional Capital. in Polygon.

Tokenization is a path to fractionation, allowing more people to own a piece of an asset that would have to be sold in its entirety sooner for a higher value. Estimates from the Big Four firm PwC call for global assets under management to reach $145.4 trillion by 2025, a massive market expected to welcome more investors and thus improve the liquidity of assets through tokenization.

Institutional investors, that is, the players who manage this capital around the world, are looking for "services that work well with what they're already doing, that are easy to implement, flexible and upgradable," Butler said.

Polygon said it has been working with many of those global players. In January, investment firm Hamilton Lane announced the first of three tokenized funds backed by the Polygon blockchain, bringing part of its $824 billion in assets under management onto the chain. By tokenizing its flagship Equity Opportunity Fund, Hamilton Lane was able to reduce the required minimum investment from an average of $5 million to $20,000.

Another example was JPMorgan. In November, the American giant executed its first cross-border DeFi transaction on a public blockchain. The initiative was part of a pilot program exploring the potential of DeFi for wholesale funding markets. The exchange was also done on the Polygon network.

Despite recent progress in integrating DeFi into traditional markets, a lack of clarity regarding regulations continues to prevent many from adopting emerging technologies. One of the main questions on this topic is: what are values? The United States Securities and Exchange Commission (SEC) has beenasserting through enforcement actions that this definition can be applied to a broader range of assets and services than many crypto companies expected. As Butler said:

"If you tokenize a security, does the digital token become a security itself or does it just represent one?"

Jez Mohideen, co-founder and CEO of Laser Digital, the crypto arm of Japanese banking giant Nomura, believes that a lack of regulation is affecting digital asset risk management, as it prevents companies from effectively separating units and business models. .

"There is a particular need for more regulation in certain parts of companies, for example making sure that capital is run by people with fiduciary responsibilities. As more and more regulatory compliance of this nature comes into play, there will be an amount every increasing institutional interest," he told Cointelegraph.